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Janet Yellen is in the running to become chairwoman of the Federal Reserve and that has many bankers and Wall Street titans worried.
The diminutive vice-chairwoman of the U.S. central bank — an academic economist who is married to a Nobel Prize-winning economist — is known to be a formidable intellect and a force on the interest rate-setting Federal Open Market Committee. Her views on financial market regulation — an area where she'd have tremendous power as leader of the central bank — are less well-known.
"Her strengths are as an economist and thinking about macroeconomic policy and monetary policy," said Tony Fratto, a former Treasury assistant secretary under President George W. Bush. "There's no question that's where the bulk of her experience is."
The Center for Public Integrity interviewed Yellen and reviewed her career through two stints on the Federal Reserve Board and as president of the San Francisco Fed Bank — including speeches, meeting transcripts, government testimony and reviews of bank failures.
The picture that emerges is of an overseer who tried to point out dangers in the banking system before the situation came to a crisis in 2008, but who didn't act forcefully against banks that she saw taking excessive risk because she didn't believe she had adequate authority.
After working through the depths of the crisis and having a hand in closing more than a dozen failed banks — including Washington Mutual, the largest bank failure in U.S. history — Yellen now appears determined to ensure that banks fortify themselves against financial shocks and that regulators have the power to police the system.
Bernanke's term ends at the end of this year and President Barack Obama has suggested that he may replace him.
If selected for the position, Yellen is unlikely to push for revolutionary change, such as breaking up the biggest banks. However, many expect her to be a tougher regulator than the current Fed chairman, Ben Bernanke, and she appears more willing to take strong action to stop banking giants from putting taxpayers at risk. But even so, the power of the Fed has its limits.
"They can't stop all future crises, but it's up to the Fed to make these crises more or less severe," said Simon Johnson, a professor at the Massachusetts Institute of Technology and author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.
Yellen wants to require big banks to hold more capital, to boost the margin requirements on derivatives trades and to require foreign banks that do business in the U.S. to hold capital in the U.S.
"We would expect her to toughen rules for the biggest banks," said Jaret Seiberg, analyst at Guggenheim Strategies in New York, in a client report. "We believe her elevation to chairman would be negative for the mega banks."